Cloud Services Become, Quite Literally, A Commodity

Grazed from Forbes. Author: Tim Worstall.

This is pretty quick for a product that is so new. Cloud Services have only been around for a few years as the technology to make them possible began to exist (specifically, cheap enough servers and broadband) but they’re already just about to become, quite literally, commodities. For the commodity markets are about to start trading a contract in cloud services:

If you thought cloud computing was complicated now, just wait until next year, when pin-striped traders will buy and sell contracts in the stuff. At least, that’s the plan of the Chicago Mercantile Exchange, which announced on Monday that it had signed a “definitive agreement” to build a commodity exchange dedicated to the buying and selling of infrastructure-as-a-service contracts whose value will be determined via a technology from cloud measurement firm 6fusion…

The importance of this is in what it tells us about the economics of being a provider of cloud services. Sure, we might think today that the services being offered by Amazon, Microsoft MSFT +1.45% and Google GOOG +0.71% are different. That’s most certainly what the three companies themselves would like us to believe. For it’s only by being able to differentiate a product that it’s possible to build a decent margin into the provision of that product. This is why companies spend so much money, time and effort on branding. It’s probably true that all of the different brands of soap clean clothes with pretty much the same effectiveness. But the soap makers absolutely don’t want us to think that as if we did then we’d simply buy whatever was the cheapest. The only method of gaining market share would be price and that leads to very low and compressed profit margins when price competition is all that you can do. So, thus all that advertising convincing us that the different brands of soap are in some major manner different…

Read more from the source @ http://www.forbes.com/sites/timworstall/2014/04/15/cloud-services-become-quite-literally-a-commodity/

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